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How to trade Commodities

If you believe that a commodity such as oil will rise, you can place a buy trade.

If the prices rises, you will make a profit for every point that the index rises. If the market falls, then you will make a loss for every point the index moves against you. Our trading platform tells you in real-time how much profit or loss you are making.

What are Commodities?

Commodities are natural products that are generally consumed by people, animals or industry such as oil, sugar and wheat. Commodities have been traded for thousands of years and have always had an important economic impact on people and nations throughout history.

Commodity trading is just as important today, with commodities playing a crucial role in global economics. Commodity markets can be easier to understand than other financial markets because prices are influenced by more obvious contributing factors. They reflect the fortunes of industries like the oil business or farming. Prices are informed by supply and demand issues that are easy to grasp.

The majority of commodities traded today can be split into three main areas:

Energy

Energy commodities are pumped out of the ground. They have a particularly strong influence over the global economy, and are also in turn influenced by demand from the global economy. Examples include:

US Crude Oil

UK Crude Oil

Natural Gas

Agricultural - ‘Soft Commodities’

Soft commodities are generally agricultural commodities that are grown or bred for human consumption, as opposed to commodities that are mined. Soft commodities are important in futures markets where people speculate on price fluctuations as supply and demand changes. They are also used by the farmers who produce these commodities to lock in the future price of their produce, and by commercial consumers and resellers of these goods. Examples of soft commodities include:

Coffee

Corn

Cotton

Orange Juice

Soy Bean Oil

Wheat

Metals - ‘Hard Commodities’

Hard commodities are resources that are generally extracted through mining, specifically metals. Metals that are traded can either be precious metals such as gold, silver or platinum, or industrial metals such as aluminium, lead or copper. Examples of hard commodities include:

Copper

Gold

Palladium

Platinum

Silver

How are Commodities traded?

Commodity trading often takes place on exchanges as futures and options. Exchanges usually become hubs for a few commodities that it specialises in, for example:

Chicago Board of Trade (CBOT)Commodities that trade on CBOT include gold, corn, silver, wheat and rice

NYMEX
known for being the most liquid market place for the trading of West Texas Intermediate Oil futures.

What drives Commodity markets?

Commodity markets exist to provide more efficient prices and security for consumers of those commodities. Airlines, for example, want to be able to protect themselves from sudden and unpredictable changes in the oil price, while farmers will be looking for the best price for their products. A food manufacturer will want to ensure that the price it pays for wheat will be steadily consistent.

The growth of interest in commodity trading represents the growth in interest in global trade and delivering an internationally-recognised price for a product.

Commodity markets can be influenced by a range of factors, including:

Interruptions of supply, such as bad harvests, miners’ strikes or stockpiling

Seasonal demand, for example from consumers of heating oil and natural gas in the winter, or people buying gold during periods of political uncertainty

General economic slowdowns, which can impact demand. Oil, for example, is sensitive to this

It is worth doing more research on a market you are interested in, as each has its own characteristics

Did you know? There are two oil commodity markets, Brent Crude and West Texas Intermediate. These reflect the prices of US and non-US oil. To make things simpler, at City Index we call them US Crude Oil and UK Crude Oil. While the prices of both will be similar, they are not exactly the same.

Trading Commodities with City Index

City Index offers spread betting and CFD trading on commodities

You can trade over 25 energy, agricultural and metal commodities, as well as multiple futures for the same market and options for a select number of commodities

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Spread Betting, CFD Trading and Forex Trading are leveraged products. and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

* Spread Betting and CFD Trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

Capital at risk.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Capital at risk.